Equirus Wealth
09 Dec 2022 • 5 min read
Both these entities are financial institutions that cater to corporate and HNI (High Networth Individuals) clients. Merchant and Investment banks do not provide financial services to individuals. As a conventional practice, investment banks are enablers for companies who aspire to float an IPO (Initial Public Offering). On the other hand, merchant banks provide trade finance services to HNIs and corporates. However, over the years, these entities have widened their offerings, often overlapping the services offered. Hence, they are used almost synonymously. We look at the subtle difference between Investment banking and Merchant banking practice.
Investment Banking conventionally covers functions such as underwriting and M&A (mergers and acquisition) advisory services. It focuses on the creation of wealth for the entities that it provides services for, which includes legal entities, Corporates, and State & Central Governments. They are the catalyst between investors and securities. These entities identify the risks of projects and reduce the time and expenses involved to optimize fund utilization. They are engaged by corporates and Government entities alike to establish or improve operational efficiency. Investment banks are also expanding their scope of operation and providing services to their potential clients.
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Below is the range of services offered by Investment banks:
The traditional role of Merchant banks is to provide financial and consultancy services within the realm of international trade and trade finance. They have, over the years, expanded their offerings wherein they offer services that are traditionally attributed to the investment banks, namely underwriting, funding services, portfolio management services, insurance services etc., They offer these services, which are not core to their practice, to small corporates or HNI clients as compared to investment banks which offer them to large corporates and bigger HNI clients.
Below is the range of services offered by Merchant banks:
The subtle difference between investment banking and merchant banking is their core operations. Investment banks’ core operations are underwriting and issuance of securities, while merchant banks are involved primarily in International financial and trade-related activities.
In today’s dynamic financial world, financial entities are growing increasingly similar, offering overlapping services. The scope of investment banks is far wider than that of merchant banks.
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